The Pros and Cons of Infinite Banking and Whole Life Insurance
Money For the Rest of Us
J. David Stein
4.5 • 1.4K Ratings
🗓️ 11 August 2021
⏱️ 26 minutes
🧾️ Download transcript
Summary
How permanent life insurance can be an effective tool for retirement planning.
Topics covered include:
- What is the difference between term and whole life insurance
- How many people let their life insurance policies lapse each year
- What are strengths that insurance companies have that are beneficial to individual investors
- What are the benefits of whole life insurance policies
- How the infinite banking concept works and who should it be used
- How asset allocation should differ when investors have a whole life insurance policy
- What are concerns with whole life insurance
- How an integrative approach of using whole life, immediate annuities, and investments can lead to higher retirement spending levels
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Show Notes
Arthur L. Williams Jr.—Wikipedia, Aug 10, 2021
ACLI 2020 Life Insurers Fact Book—The American Council of Life Insurers
Pros And Cons Of Life Insurance For Children by Cameron Huddleston and Amy Danise—Forbes
The Four Approaches to Managing Retirement Income Risk by Wade D. Pfau
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326: The New Math of Retirement Spending and Investing
349: Forward and Reverse Mortgages: When To Take Them Out and When to Pay Them Off
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Transcript
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| 0:00.0 | Welcome to Money for the Rest of Us. This is a personal financial on money, how it works, |
| 0:06.6 | how to invest it, and how to live without worrying about it. I'm your host David Stein, |
| 0:11.4 | today's episode 353. It's titled The Pros and Cons of Infinite Banking and Whole Life Insurance. |
| 0:21.0 | I don't remember much about my university days, but one presentation I do remember from |
| 0:26.7 | a finance class. It was a student that sold life insurance, apparently, for a company called |
| 0:33.8 | A. L. Williams, and he introduced a phrase I had never heard before, and he said it over and |
| 0:41.2 | over and over again, by term and invest the difference. What he meant was by term life insurance, |
| 0:50.7 | the type of life insurance that you pay a fixed premium over a set period of time, say 10 or |
| 0:57.5 | 20 years, and then the life insurance ends and you're no longer insured. Term life insurance is |
| 1:04.0 | cheaper than permanent life insurance. Permanent life insurance such as whole life insurance is life |
| 1:10.7 | insurance you keep throughout your life, and there's an investment component to it that I'll explain |
| 1:16.3 | in a few minutes. The idea behind by term and invest the difference is the purpose of life insurance |
| 1:23.6 | is to protect against the loss of human capital, or earnings power. As we get closer to retirement, |
| 1:32.0 | we have less human capital because we're not going to be working as long, and ideally we have |
| 1:37.2 | sufficient retirement assets that we don't need that life insurance protection. After hearing |
| 1:44.2 | that presentation and other things I've read about the topic I was down on permanent life insurance |
| 1:50.3 | policies like whole life. They seem more complicated. The premiums were higher, and I've seen families |
| 1:58.8 | purchase them and not maintain them. On average, about 6% of individuals let their life insurance |
| 2:06.6 | terminate each year, letting it lapse by not paying the premium or by surrendering it and collecting |
| 2:13.0 | any cash value that is available. Because term premiums are less expensive, it seems less likely |
| 2:21.6 | that term policies will lapse. I have two term life insurance policies that are coming to an end, |
| 2:29.2 | two five hundred thousand dollar policies. I see now one of the disadvantages of term life insurance. |
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